Easy Work Limited & Ors v The Commissioners for HMRC
[2024] UKFTT 969 (TC)
Lancer Scott Limited v The Commissioners for HMRC
17 June 2024
[2024] UKFTT 545 (TC)
First-tier Tribunal
A construction company tried to deduct taxes based on fake invoices from a money launderer. The tax authorities found out and the court said the company knew the invoices were fake, so they had to pay the taxes and penalties.
Key Facts
- •Lancer Scott Limited (Appellant) appealed HMRC's denial of input tax deduction of £551,695.
- •The disputed input tax was claimed based on supplies from entities connected to Wilfred Folwell, later convicted of money laundering.
- •HMRC asserted that no or substantially overstated supplies were made, and the Appellant knew of the fraudulent evasion of VAT.
- •The assessment was calculated based on £3,903,625 paid to Folwell's accounts.
- •HMRC relied on Folwell's conviction, the Appellant's involvement in a Solaglas fraud, evidence from customers and suppliers showing non-existent or overstated supplies, and payments from Folwell to the Appellant's directors.
- •The Appellant argued that its directors did not act deliberately and did not personally benefit.
Legal Principles
Right of deduction arises when deductible tax becomes charged (Art 167, Council Directive 2006/112/EC).
Council Directive 2006/112/EC
Input tax deduction is only allowed if goods and services are used for taxed transactions and the charge is evidenced (Sections 24, 25, 26, VATA 1994).
Value Added Tax Act 1994
Without an actual supply, no right to input tax credit arises (Infinity Distribution Limited v HMRC [2019] UKUT 0405 (TCC)).
Infinity Distribution Limited v HMRC [2019] UKUT 0405 (TCC)
Input tax claim can be refused if the taxable person knew or should have known of participation in fraudulent VAT evasion (Axel Kittel v Belgium & Belgium v Recolta Recycling SPRL).
Axel Kittel v Belgium & Belgium v Recolta Recycling SPRL (C-4)
HMRC can assess VAT to the best of their judgment if returns are incomplete or incorrect, within time limits (Section 73, VATA 1994).
Value Added Tax Act 1994
Time limits for assessments can be extended to 20 years in cases of deliberate or knowing conduct to bring about VAT loss (Section 77, VATA 1994).
Value Added Tax Act 1994
The burden of proving the assessment is valid lies with HMRC; the burden of proving the assessment is incorrect lies with the Appellant (paragraphs 19-21).
Case law cited in paragraphs 19-21 (Ahmad v. HMRC [2019] UKFTT 0682 (TC); Pegasus Birds Ltd v Commissioners of HM Revenue & Customs [2004] EWCA Civ 1015; Khan v Commissioners for HM Revenue & Customs [2006] EWCA Civ 89)
Penalty for VAT evasion requires dishonesty by the standards of an ordinary, reasonable individual (Ivey v Genting Casinos [2017] UKSC 67).
Ivey v Genting Casinos [2017] UKSC 67
Finance Act 2007 penalty provisions do not apply to tax periods before 1 April 2009 (Finance Act 2007, Schedule 24 (Commencement and Transitional Provisions) Order 2008/568).
Finance Act 2007, Schedule 24 (Commencement and Transitional Provisions) Order 2008/568
Outcomes
Appeal dismissed.
Assessments were issued within the one-year time limit after HMRC obtained sufficient evidence (jury bundle from Folwell's trial). Sufficient evidence showed Hosier's knowledge of the deliberate VAT loss. The majority of invoiced items were not supplied. The penalties were issued within time due to the deliberate fraud.
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